Environmental permit update increases accountability for flaring

LAST week, the Environmental Protection Agency (EPA) announced that it had recalled and modified the environmental permit for the Liza Phase 1 offshore project to introduce a payment mechanism for flaring offshore. The EPA’s decision to place additional conditions on flaring for Liza Phase 1—which has exceeded original estimates due to equipment failures and operational challenges—dramatically increases accountability for extended flaring.

The modified permit outlines the circumstances under which flaring is permitted and additional circumstances in which a payment is required, further strengthening the already strict environmental policies that prohibit routine flaring. The original Liza 1 Environmental Permit allowed flaring without limits for start-up, commissioning, maintenance and repairs. Background flaring (sometimes called a “pilot flare”) is necessary and allowed to ensure safety onboard the floating production storage and offloading (FPSO) vessel, and higher levels of flaring are utilised for periods such as maintenance and repairs.

The modified permit still allows for flaring for these reasons, but it imposes a strict timeline and approval process. It also introduces a payment mechanism to increase pressure on operators to complete ongoing repairs. Additionally, the Stabroek Block operator, ExxonMobil, would be required to seek approval to extend periods of increased flaring under the revised Liza Phase 1 environmental permit.

Over the last several months, ExxonMobil has been working to fix equipment failures on the Destiny FPSO, which became a more prolonged and complex issue than first expected. These ongoing maintenance issues in 2021 ultimately pushed the EPA to impose limits and determine costs for extended flaring.

The Liza Phase 1 Environmental Impact Assessment estimated that the Destiny FPSO could flare approximately 14 billion cubic feet of gas up to May 13, 2021. In 2020, approximately 10 billion cubic feet of gas were flared from the Destiny, within estimated levels. This is a high number, but Guyana’s level of flaring is low relative to other oil producing nations like Nigeria and Algeria, where flaring surpassed 275 billion and 330 billion cubic feet of gas in 2019, respectively.

In an attempt to make sure that Guyana’s flaring does not drift higher and to demonstrate clearly that environmental performance will be a critical component of economic growth, the modified environmental permit for the Liza Phase 1 project includes a requirement for the operator to pay US$30 per tonne of CO2 that is emitted as a result of excess flaring.

While this may not seem like a large payment, it could quickly generate hundreds of millions of Guyana dollars over several weeks if flaring continues at current levels. In fact, Vice President Bharrat Jagdeo, at a press conference on Friday, said that using the current flare level and the period to June 30 that ExxonMobil has applied to flare while it fixes the equipment failure would result in more than GY$250 million in payments. This is a significant amount of money, and the EPA has said that this money could be used to fund supplemental environmental projects.

Despite reduced production levels over the past few months, Guyana’s sixth lift of oil took place in mid-April and added approximately US$60 million to the Natural Resource Fund, which is now well over US$300 million, or more than GY$60 billion. The potential for more significant production cuts would have spillover effects for government revenues, businesses in Guyana and potential government spending. The new permit structure balances these financial realities with the need to ensure greater accountability for offshore flaring.

While additional payment mechanisms could harm production levels in Guyana, the outcome of this modified permit will be positive if flaring can be reduced, accountability increased and maintenance issues can be solved more quickly. It also shows that government agencies are capable of working cooperatively but decisively to regulate natural resource development.

As we continue to develop and think about the policies that govern growing industries, this could be a model for balancing the country’s needs, encouraging investment and ensuring accountability for responsible environmental management.

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